Are Tech Giants Losing Their Shine? The 'Valuation Gap' in U.S. Stocks Disappears, Revealing the Next Wave of Opportunities

This summer, momentum stocks led by artificial intelligence (AI) themes have faced turbulence, as investor enthusiasm that once drove aggressive buying has now shifted to volatility and uncertainty. However, Goldman Sachs believes this correction in popular stocks actually creates an excellent opportunity for investors to reposition.

A Goldman Sachs strategy team led by Peter Oppenheimer released a new report on Monday (the 3rd), stating that the market is reassessing valuations of large technology companies. Their price-to-earnings (P/E) ratios have declined, primarily due to investor concerns over the future returns from capital expenditures.

Goldman data shows that the five largest U.S. companies by market capitalization now have P/E ratios only slightly higher than the remaining 495 companies. The long-standing valuation premium they enjoyed since 2017 has largely disappeared.

Oppenheimer and his team analyzed: 'This is fundamentally different from the internet bubble era. Back then, valuations soared to extreme levels before collapsing. In contrast, although stock prices have seen a moderate correction this time, corporate earnings remain extremely resilient.'

Globally, the P/E premium of the technology sector over other industries has dropped from a peak of nearly 200% at the beginning of the century to around 20% today. As tech leadership shifts toward hardware—especially chipmakers—earnings growth is being driven by strong AI demand.

Nevertheless, Goldman notes these companies remain highly cyclical, and the market is increasingly concerned about the sustainability of their earnings growth, leading to downward valuation adjustments. Although chip stocks' valuations have retreated, the market's implied future growth expectations continue to rise, still far below the peaks seen during the dot-com bubble.

Moreover, the capital rotation effect has spilled over into other sectors, lifting growth expectations and valuations for long-neglected 'old economy' industries. Industrial stocks are now valued at the highest level in nearly two decades, surpassing tech stocks. Meanwhile, tech stocks have returned to their near 20-year average valuation.

In fact, consumer staples, discretionary consumer goods, and healthcare sectors are now valued higher than information technology or communication services industries.

Goldman emphasizes that despite strong earnings, the valuations of the largest U.S. market-cap stocks and dominant sectors have compressed, causing the overall P/E ratio to decline. However, from the perspective of return on equity (ROE), U.S. equities remain the most attractive market currently.

The report also notes that only the Chinese market has an ROE below its historical average, with significantly weaker profitability.

Therefore, Goldman recommends that this valuation correction offers investors a timely opportunity to re-enter U.S. equities, while also achieving risk diversification through cross-regional allocation.

Additionally, a separate report by a team led by Ben Snider, Goldman Sachs' chief U.S. equity strategist, points out that historical patterns favor momentum stock investors. He states that the strongest momentum rallies over the past decades typically follow a period of consolidation after a sharp pullback—similar to the recent downturn.

Goldman's strategy team concludes that historical price movements, combined with recent significant deleveraging by hedge funds and ETF investors, suggest that market volatility driven by capital rotation may gradually subside in the coming weeks.